Pakistan Row Nears End, Etisalat May Have To Pay Out

Pakistan Telecommunication (PTCL) should soon receive assets due to it as part of its partial privatisation, its chief executive said, a development that could trigger an $800 million payment from shareholder Etisalatto the government

Etisalat, the telecoms operator in the United Arab Emirates, led a consortium that bought a 26-percent stake in the Pakistani former monopoly for $2.6 billion in 2006.

The deal included transferring ownership of about 3,000 real estate properties toPTCL from the government, but this stalled and Etisalat withheld the final $800 million it owed.

The dispute has dragged on for more than four years, during which PTCL’s market capitalisation has fallen to $522 million, according to Reuters data, makingEtisalat’s stake worth less than $120 million.

“We are waiting for the final lot of transferring the titles of some properties,” Walid Irshaid, PTCL chief executive of Pakistan, told Reuters.

“We are very close to finalising,” he said, adding that he expected the remaining around 100 properties to be transferred this year.

“Some of these lands are under provincial government control and some under thefederal government. This issue is always contentious,” said Irshaid.

No comment was available from Etisalat, despite repeated requests for a statement on whether it would pay the outstanding money to Pakistan or whether it was seeking a discount on the original deal price.

Etisalat owns 90 percent of the acquiring consortium, giving it a 23 percent stake inPTCL. The consortium’s bid was $1.2 billion more than the next highest bid.

PROFIT PLUNGE

Profits at PTCL, which is majority government-owned, have plummeted since Etisalat took management control and the sector was opened up for more competition.

In the financial year ending June 30, 2005, the Pakistani operator made a net profit of 27.3 billion rupees ($301 million), according to Reuters data, but six years later this had

slumped to 8.4 billion rupees.

The profit drop was unavoidable, Irshaid said, as the company sought to reduce its reliance on plunging call revenues.

“You cannot (compare) what we were doing in the monopoly days and the market now. We would have been wiped out as a company if we hadn’t started this diversification,” he said.

“We couldn’t live on voice. We had to change … creating new revenue streams likebroadband, corporate sales and wholesale.”

Phone calls now provide 40 percent of the company’s revenue, compared with up to 80 percent previously, Irshaid said, while broadband now accounts for a fifth of earnings.

“Our core business has to transform from voice into data and broadband,” he said. “We should have 80 percent coming from broadband and the remaining 20 percent from other services in the coming four to five years.”

PTCL, with more than 1 million broadband subscribers, will invest 100 billion rupees to raise this to 5 million by 2016.

“To do that, we need to invest more to improve our infrastructure,” said Irshaid. “It will not be an equity injection, it will all be self-financed,” Irshaid said, adding the firm may raise debt, but declining to give more details.

Pakistan will hold a 3G mobile licence auction that will be open to existing and new mobile operators, Irshaid said, with bids likely to be lodged in June.